HDC 201311010035A
Announcement regarding the acquisition of the Dunford Group ("DG")
HUDACO INDUSTRIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1985/004617/06)
Share code: HDC & ISIN: ZAE000003273
(ôHudacoö)
ANNOUNCEMENT REGARDING THE ACQUISITION OF THE DUNFORD GROUP (ôDGö), COMPRISING
DOSCO PRECISION HYDRAULICS PTY LTD, GEAR PUMP MANUFACTURERS PTY LTD, JOSEPH
GRIEVESON PTY LTD AND ENGINEERING TECHNOLOGY SERVICES PTY LTD
1. INTRODUCTION
Shareholders are advised that Hudaco has signed an agreement to acquire 100% of DG (ôthe
Agreementö) from Dunford Holdings Pty Ltd (the ôSellerö) (ôthe Transactionö).
2. RATIONALE FOR THE TRANSACTION
Hudaco is a South African group of companies specialising in the importation and
distribution of selected high quality engineered and security products in the southern
African region. One of HudacoÆs key strategies is to apply its strong cash flows to acquire
new businesses in similar fields of activity when the opportunity arises.
DG has two main areas of business:
- Machining, repair and sale of hydraulic pumps for the local and export market; and
- Production of ferrous and non-ferrous castings for a diversity of industries in South
Africa.
DG is an ideal fit for Hudaco in that it focuses on selling industrial products, which is an area
of core competency for Hudaco. Hudaco will be able to utilise its experience and expertise in
those markets to enhance DGÆs position, resulting in long term benefits to shareholders.
Furthermore, the GPM brand is owned by the group and therefore can be sold in world
markets, unlike the Hudaco products which are restricted to Southern Africa by agency
agreements.
3. DETAILS OF THE TRANSACTION
3.1 Structure of transaction
Hudaco Trading Pty Ltd, 85% owned by Hudaco, will become a 100% shareholder of
the four companies constituting DG. In terms of the Agreement, the Seller is
required to purchase a maximum of 927 000 Hudaco shares on the open market,
which shares must be retained for a minimum period as follows: a maximum of one-
third may be sold after one year, a further one-third after two years and the balance
after three years.
3.2 Consideration
The consideration, to be settled on the day all suspensive conditions are fulfilled,
will be:
- an estimated cash payment of R148.2 m; and
- an amount of R8 473 for each day between 1 October 2013 and the date of
actual payment of the consideration, which is expected to be on or about
30 November 2013;
with the maximum consideration payable being R154.3 million.
3.3 Related Party
Graham Dunford, an executive director of Hudaco, is a 60% shareholder of the
Seller. The remaining shares are held by Tommy Dunford, the CEO of DG.
3.4 Management
Tommy Dunford will enter into a service contract for a minimum period of three
years and a restraint of trade agreement in favour of Hudaco for a period of three
years after employment ceases. Graham Dunford will enter into a similar restraint
agreement.
3.5 Suspensive conditions
The Transaction is subject to the following conditions, which are required to be
fulfilled by 29 December 2013 at the latest:
- such approvals as may be required in terms of the Competition Act of 1998,
as amended;
- the conclusion of a due diligence investigation, the outcome of which
satisfies the board of directors of Hudaco;
- written confirmation from an independent expert acceptable to the JSE
Limited (ôJSEö) that the terms of the Transaction with the related party are
fair as far as the shareholders of Hudaco are concerned;
- approval from the major suppliers of DG to continue supply on the same
terms and conditions as in the past;
- the signing of new lease agreements relating to the properties from which
DG operates upon acceptable terms and conditions at market related
rentals; and
- any other approvals required by the JSE.
3.6 Fairness report
KPMG has been appointed as the independent expert and their opinion will be
provided to the JSE in due course.
4. PRO FORMA FINANCIAL EFFECTS
The table below sets out the unaudited pro forma financial effects of the Transaction on
HudacoÆs earnings per share (ôEPSö), headline earnings per share (ôHEPSö), fully diluted
earnings per share (ôDiluted EPS), net asset value per share (ôNAVö) and net tangible asset
value per share (ôNTAVö). The unaudited pro forma financial effects and the preparation
thereof, which is the responsibility of the directors of Hudaco, has been prepared for
illustrative purposes only, and because of its nature, may not give a fair reflection of
HudacoÆs financial position and results of operations, nor the effect and impact of the
Transaction on Hudaco going forward.
Year ended Adjustment Before the After the Change
30 November Transaction Transaction %
2012 (cents)2 (cents)1 (cents)3,4
(cents)
HEPS 1 071 7 1 078 1 122 4.1%
EPS 1 074 7 1 081 1 125 4.1%
Diluted EPS 1 058 15 1 073 1 117 4.1%
NAV 5 277 163 5 440 5 438 -0.1%
NTAV 3 244 166 3 410 3 006 -11.8%
Notes:
1. The amounts in the ôBefore the Transactionö column are based on the financial results
for Hudaco for the twelve months ended 31 May 2013 which is derived by subtracting
the results of the six months to May 2012 from the audited full year results to
30 November 2012 and adding the unaudited results of the six months results to 31 May
2013.
2. The amounts in the ôAdjustmentö column refer to the difference between the six
months to 31 May 2012 and the six months to 31 May 2013.
3. The amounts in the ôAfter the Transactionö column have been calculated using the
audited financial statements of DG for the twelve months ended 30 June 2013.
4. The amounts in the ôAfter the Transactionö column have been adjusted to take into
account anticipated interest to be paid on the total subscription consideration of R148.2
million at 8% per annum, less taxation thereon. The consideration is based on payment
on 30 November 2013 and a Hudaco share price of R102 per share.
5. For the purposes of calculating the HEPS, EPS and Diluted EPS, it was assumed that the
Transaction was effective on 1 June 2012.
6. For the purposes of calculating NAV and NTAV, it was assumed that the Transaction was
effective on 31 May 2013.
7. Per share earnings have been calculated using the weighted average number of shares in
issue for the twelve months ended 31 May 2013, being 31 645 703 shares for HEPS and
EPS purposes and 31 873 000 shares for Diluted HEPS purposes.
8. NAV and NTAV have been calculated based on 31 645 703 shares in issue at 31 May
2013 net of treasury shares.
9. Estimated transaction costs of a non-recurring nature amounting to R1.1 million (net of
taxation) relating to the Transaction have been included in the determination of HEPS,
EPS and Diluted EPS.
10. As no purchase price allocation has yet been conducted, no account has been taken of
amortisation of intangible assets that may be identified.
5. CATEGORISATION
The Transaction is classified as a ôsmall related party transactionö in terms of Section 10 of
the JSE Listings Requirements.
Johannesburg
1 November 2013
Sponsor
Nedbank Capital
Date: 01/11/2013 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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